Inflation dip clears air for more rate cuts

The benchmark inflation rate fell to 6.84 per cent from 8 per cent in data released , aiding policy makers groping for options to boost fiscal spending and stimuli to boost up the economy from a slowdown.

The country’s monetary authorities now have more elbow room to cut interest rates.

The benchmark inflation rate fell to 6.84 per cent from 8 per cent in data released on Thursday, aiding policy makers groping for options to boost fiscal spending and stimuli to boost up the economy from a slowdown. Increasingly benign global oil prices may also help the government perk up its big push.

Macroeconomic managers are giving final touches to a new fiscal package that is likely to be announced next week but such stimulants carry the risk of leaving a bigger hole in the government’s books in the current fiscal year.

The government had budgeted a central fiscal deficit of 2.5 per cent of the gross domestic product (GDP) in 2008-09.

“The trend is clear for falling inflation and this will translate into lower interest rate...RBI must be keeping a watch and take steps if necessary,” said Economic Affairs Secretary in the Finance Ministry, Ashok Chawla.

Earlier this month the government cut prices of petrol and diesel by Rs 5 and Rs 2 per litre respectively., reversing an earlier decision to raise prices that was done to protect state-owned oil firms from suffering losses on account of high crude oil prices. Crude prices hit an all time high of over $147 in July before beginning to decline sharply and is currently ruling at sub-$40 per barrel level.

The government on Thursday sought Parliamentary approval for extra cash expenditure of Rs 42,480 crore to boost the economy in the face of slowdown.

The second batch of supplementary demands for grants was tabled in Rajya Sabha barely a fortnight after the government announced a mini-budget of sorts offering across-the-board indirect tax breaks to cut prices of products and boost demand. The demand seeks a gross additional expenditure of Rs 55,604.83 crore, of which the net cash outgo would be Rs 42,480.10 crore.

“RBI should cut interest rate expeditiously and by a significant quantum. It must also ease availability of credit further. Federation of Indian Chambers of Commerce and Industry’s Secretary General Amit Mitra said.